Every autumn a version of the same question lands: should the next car go through the company? For years the honest answer was "probably not, unless it's electric". That is still the answer, but the margin is narrowing, and the numbers moved again on 6 April 2026. Here is the whole calculation, on both sides of the payslip, with the 2026/27 figures.
Two things make this harder than it should be. The first is that the tax lands in four separate places — the driver's income tax, the company's National Insurance, private fuel, and capital allowances — and most comparisons only show you one of them. The second is that the electric rate is deliberately climbing, so a decision that looks obvious on a three-year lease needs checking against the published rates for the years you will actually be driving it.
The sum HMRC actually does
A company car is taxed on its cash equivalent, and the formula is short:
List price × appropriate percentage = cash equivalent.
List price is the manufacturer's published price when the car was first registered, including VAT, delivery and factory-fitted options. It is not what the company paid. Discounts, part-exchanges and dealer deals are irrelevant to the benefit charge — which is why haggling hard on an expensive car does nothing for your tax bill.
The appropriate percentage comes from a table based on CO2 emissions, and for plug-in hybrids emitting 1–50g/km, on electric-only range as well. The cash equivalent is then taxed on the driver at their marginal income tax rate, and the company pays Class 1A National Insurance on the same figure at 15% for 2026/27.
The 2026/27 percentages that matter
Zero-emission cars sit at 4% for 2026/27, up from 3% in 2025/26. The published schedule takes them to 5% in 2027/28. Cars emitting 75g/km or less were all increased by one percentage point this year, to a maximum of 21%. Above that the table is unchanged, and it tops out at 37%.
| CO2 (g/km) | Appropriate percentage 2026/27 |
|---|---|
| 0 (fully electric) | 4% |
| 1–50, electric range 130+ miles | 4% |
| 1–50, electric range 70–129 miles | 7% |
| 1–50, electric range 40–69 miles | 10% |
| 1–50, electric range 30–39 miles | 14% |
| 1–50, electric range under 30 miles | 16% |
| 75–79 | 21% |
| 100–104 | 26% |
| 130 | 32% |
| 145–149 | 35% |
| Maximum | 37% |
Diesel cars that do not meet the RDE2 standard carry a four percentage point supplement on top, still capped at 37%. Note where the plug-in hybrid numbers land: a hybrid with a 35-mile electric range is taxed at 14%, three and a half times the rate of a full electric car, and most drivers of those cars never plug them in.
Worked example: a £45,000 electric car against a £40,000 petrol one
Illustrative figures, but the rates are the real ones. A director on the higher rate of income tax at 40%, a company paying Corporation Tax at the 25% main rate, and two cars:
- Car A — new fully electric, list price £45,000, 0g/km, appropriate percentage 4%.
- Car B — new petrol, list price £40,000, 130g/km, appropriate percentage 32%.
| Car A (electric) | Car B (petrol) | |
|---|---|---|
| Cash equivalent | £1,800 | £12,800 |
| Director's income tax at 40% | £720 | £5,120 |
| Company Class 1A at 15% | £270 | £1,920 |
| Total annual tax cost | £990 | £7,040 |
| Year one capital allowance | £45,000 (100% FYA) | £2,400 (6% special rate) |
| Corporation Tax saved, year one | £11,250 | £600 |
So the electric car is £6,050 a year cheaper in benefit tax on a list price that is £5,000 higher, and it delivers £10,650 more Corporation Tax relief in the first year. Even allowing for the petrol car's pool continuing to be written down at 6% for years afterwards, that is not a close contest.
The charge that costs most and gets missed
Private fuel. If the company pays for fuel used privately in a petrol or diesel company car, a second benefit lands on top of the car benefit. The calculation is the fuel benefit multiplier for the year multiplied by the same appropriate percentage. For 2026/27 the multiplier is £29,200.
On Car B above: £29,200 × 32% = a cash equivalent of £9,344. The director pays £3,737 in income tax and the company pays £1,402 in Class 1A. That is £5,139 a year in tax to have private petrol paid for. Unless private mileage is very high indeed, it is cheaper for the director to buy their own fuel and reclaim business miles at the advisory fuel rates.
Electricity is not fuel for this purpose. There is no fuel benefit charge on a company paying to charge a company car, and workplace charging is exempt. It is one of the quieter reasons the electric numbers look as good as they do.
Charging, mileage and the 7p and 15p rates
From 1 September 2026, HMRC's advisory electricity rates for fully electric company cars are 7p per mile for home charging and 15p per mile for public charging. Use them to reimburse business miles without creating a benefit, or to recover the cost of private mileage from the driver. These are company car rates. If the car is owned personally, you are in approved mileage allowance payment territory instead, which is a different rate and a different form.
The practical point is to decide which one you are in before the first payroll run, and to keep a mileage record that distinguishes business from private. Retro-fitting that evidence a year later is the part clients find painful.
What the company gets back
Cars are excluded from the Annual Investment Allowance, so the relief route depends on emissions:
- New and unused zero-emission cars — 100% first-year allowance, extended to 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax. The whole cost comes off in year one.
- Cars at 50g/km or less — main pool, written down at 14% a year from April 2026 (it was 18%).
- Cars above 50g/km — special rate pool at 6% a year.
The gap between 100% and 6% is the single biggest number in this article, and it is the one most likely to change before your next renewal: the first-year allowance has now been extended twice, a year at a time. If a new electric car is on the plan for 2027, the deadline is worth diarising rather than assuming. We cover this alongside the rest of the year's planning in tax planning.
Vans are a different, and usually cheaper, calculation
A van is taxed on flat rates, not on list price. For 2026/27 the van benefit charge is £4,170 where a van capable of emitting CO2 is available for private use, and the van fuel benefit charge is £798. A zero-emission van has a nil van benefit charge.
Better still, there is no benefit at all if private use is limited to ordinary commuting plus insignificant private use — the "restricted private use" condition. Many owner-managed businesses running a genuine work van are in that position and are paying nothing. The classification of double-cab pick-ups has moved, so if you have one, get it checked rather than assumed.
A decision rule, and four things to do this week
The rule of thumb that survives the arithmetic: if the car emits more than about 50g/km, keep it out of the company and claim mileage. If it is fully electric, put it in. Plug-in hybrids sit awkwardly in the middle and only work if the electric range is genuinely over 70 miles.
- Find the list price, not the invoice price, for every company car you already run, and check the appropriate percentage against the 2026/27 table. Errors here run for years unnoticed.
- Stop paying for private fuel in any petrol or diesel company car unless you have calculated that the private mileage justifies £5,000-odd of tax. Switch to reimbursing business miles at advisory rates.
- Decide your payrolling position. Payrolling benefits in kind becomes mandatory from April 2027, so if you are still filing P11Ds, this is the year to move rather than the year after. Our payroll and pensions page covers what changes.
- If a new electric car is planned, check the first-year allowance date — 31 March 2027 for companies — against your order lead time. Delivery dates on EVs have a habit of slipping across a year end.
If you run a limited company and want the sum done properly for your actual car and your actual marginal rate, that is a twenty-minute job. See how we work with limited companies, look at what is covered in our accountancy packages, or book a discovery call and bring the registration document.
Rates in this article are the published 2026/27 figures: appropriate percentages from HMRC's 480 Appendix 2, van and fuel benefit charges from HMRC's uprating policy paper, and advisory electricity rates effective 1 September 2026 from HMRC's advisory fuel rates. Correct at 7 September 2026.